The Impact of Common Fund on the Economic Growth in Ghana: An Empirical Evidence

Abstract

This paper examines empirically the impact of Common Fund on Economic Growth, the long run equilibrium relationship and the direction of causality among the variables using annual time series data spanning 1994 to 2013 and by using the newly developed approach to cointegration by Pesaran et al. (2001) that performs well with small data and regardless of the order of integration, that is, whether the series are I (0) or I (1). First, the order of integration is tested using the Augmented Dickey-Fuller (ADF) and Phillips Perron (PP) unit root tests. The second stage involves testing for the existence of a long- run equilibrium relationship among the variables and their respective impact on Economic Growth in Ghana. The final stage involves testing for the direction of causality augmentedwith a lagged error-correction term where the series are cointegrated. The results of ADF and PP unit root test confirmed that while some of the variables are stationary at level, others are at first differencing. Also, long-run relationship is established among the variables and there exists unidirectional causality running from Common Fund to Economic Growth. Finally, Common Fund has insignificant positive impact on the Economic Growth in Ghana.